US warns Pirelli risks restrictions due to Chinese investor

[MILAN] The US government warned Italy’s Pirelli & C that vehicles containing its advanced sensors technology could be restricted from sale in America due to concerns over the influence of the tiremaker’s Chinese investor.

The informal advisory, outlined in a letter dated Apr 25 by the Commerce Department’s Bureau of Industry and Security – known as BIS – said that car manufacturers that incorporate the so-called CyberTyre technology into their completed connected vehicles would likely need to apply for a specific authorisation to sell those cars in the US.

The assessment by BIS, which writes and enforces rules regarding transactions including sensitive technologies, was made in response to a request for an advisory opinion by Pirelli, according to a document seen by Bloomberg.

A representative for Pirelli declined to comment. Representatives for Commerce and Sinochem did not immediately reply to requests for comment.

Pirelli shares fell as much as 3.3 per cent on the news, having been trading slightly higher prior to the Bloomberg News report.

The advisory is among the first known examples of how the US government will enforce a new rule restricting the import and domestic sale of cars using certain Chinese and Russian technology.

Pirelli’s CyberTyre is a tyre system made by hardware and software that enables driving functions such as braking optimisation, automatic emergency braking and automatic speed reduction.

While the BIS opinion does not say vehicles using the technology would be subject to an outright ban, it highlights the issues that Pirelli may face in incorporating its technology in cars intended to be sold in America, as it seeks to strengthen its foothold across the Atlantic.

Pirelli, which supplies tyres to manufacturers including Ferrari and Bentley Motors, has found itself in a growing governance feud with its biggest investor, China’s state-owned Sinochem, which holds a 37 per cent stake.

The central dispute revolves around establishing a shareholder structure that does not put the tiremaker at risk of breaching US laws that aim to prevent countries such as China from hacking or tracking vehicles using software systems that their domestic companies have created.

Pirelli, which generates about a quarter of its sales in the US, last month took a first step to distance itself from its main investor, downgrading the governance status of the Chinese conglomerate following a request from Italian regulators. Its 15-member board clashed over the decision, with five of the company’s Chinese directors opposing it and one abstaining.

While the end of controlling status will not force Sinochem to sell its holding, it will effectively distance the company financially from Pirelli. Still, formal talks with Sinochem on a new structure have yet to conclude.

Pirelli chief executive officer Andrea Casaluci said in an interview with Corriere della Sera last week that “without a deal with Sinochem, development of our core technologies and further growth – in particular in the United States – could be greatly at risk”. BLOOMBERG